In the recent case of Pillar Denton & Others v Jervis & Others, the Court of Appeal has overturned the decision of the High Court in relation to the payment of rent during the administration of a company and decided that rent is to be treated as an administration expense, payable on a daily basis for the period during which premises are actually retained for the benefit of the administration.
The question at issue was, where leasehold property is retained for the benefit of an administration, when is rent payable as an administration expense. This is a question of vital importance, particularly to the landlord, because:
• If debt is payable as an administration expense it will usually be paid in full prior to the distribution of any surplus to the remaining creditors of the company.
• If the debt is not considered to be an administration expense and there is not sufficient surplus to pay all creditors, the landlord will only receive a proportion of the debt.
Previous position under Goldacre (Offices) Ltd v Nortel Networks UK Ltd (“Goldacre”)
Goldacre involved a lease in which rent was payable quarterly in advance. The company went into liquidation on the day following the due date of the quarterly rent payment and the rent remained unpaid. The property was then used for the benefit of the administration.
The High Court held that because the rent became payable prior to the company entering administration, the rent could not be paid as an administration expense. However, any rent falling due whilst the property was in use for the benefit of the administration was payable as an administration expense whether or not the property was in use for the whole quarter.
Position following Pillar Denton & Others v Jervis & Others
The Court of Appeal has overturned the previous position, holding that where an office holder makes use of leasehold property for the purpose of the administration, any rent payable during this period of use will be payable as an administration expense and treated as accruing on a day to day basis. This is to be the case irrespective of when the rent falls due.
The Court of Appeal also made it clear that the same principles would apply equally in liquidation.
As a result an office holder is required to make rent payments for any period in which he retains possession of the leasehold property for the benefit of the administration. The rent will be treated as accruing from day to day.
The decision strikes a fairer balance between the interests of landlords and office holders because:
• A landlord will receive rent for the whole period that the property is in use for the purposes of administration in priority to other creditors of the company.
• If rent falls due after a company has gone into administration, rent will only be payable by office holders as an administration expense for the period of time that the property is being used for the benefit of the administration and not for the entire quarter.
Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.
For further information, please contact Kenny Friday at
